Indian e-commerce and consumer Internet companies are deepening their impact across most sectors from agriculture to health and education with the right intervention of innovative technologies to bring in much needed democratization and efficiencies.
The past five years have seen the expansion in the breadth of services available at our fingertips providing greater convenience and access, according to the recent EY-IVCA India Trend Book 2021 on e-commerce and consumer Internet sector.
Ankur Pahwa, Partner and National Leader – E-Commerce and Consumer Internet, EY India, says, “India is at an inflection point, with digital transformation witnessing mass adoption, bringing onboard a wave of first-time consumers and transforming the business landscape. Technology enabled innovations across digital payments, on-demand services, analytics driven customer engagement and digital advertisements are expected to drive growth in the sector. “
- Rise of the direct-to-consumer (D2C) model
- Omnichannel approach by large retailers
- Increasing use of deep tech
- Entry into new markets – including global aspirations and expansion plans
- The emergence of super apps
- Deployment of capital is getting broader
- While capital is being concentrated to the large players, growing list of young start-ups also attracting investments
- IPO build-up, consolidation and exits ahead
- Evolution of investor ecosystem with new class of investors participating in the segment
Karthik Reddy, Managing Partner, Blume Ventures and Vice-Chairperson, IVC Association (IVCA) says, “In the next phase of e-commerce, we expect a surge of demand from Tier II and Tier III cities and towns in India, bringing in the next 100s of millions of consumers. A new wave of investments in this sector in both B2B and B2C commerce are creating a huge gig economy, several sub sectors have emerged, and innovation is going to storefronts, local commerce, and e-commerce infra and payments. Lenskart, Flipkart, Delhivery and Nykaa may launch bellwether IPOs and unleash the potential of the sector. The government is a huge enabler of this shift and is working along with the investors, startups and industry bodies like IVCA to support the growth of the sector."
In 2020, e-commerce and consumer Internet companies raised over US$8 billion in PE/ VC capital spread over 400 deals (excluding Jio platform investment) giving rise to 9 new unicorns. Edtech and hyperlocal segments led the investment activity, together accounting for over 40 percent of 2020 investments and witnessing 5x and 2x growth in funding value respectively over 2019. Fintech and social commerce continued to witness traction by investors as the pandemic significantly increased online transactions and interactions. The Indian e-commerce segment is witnessing increased activity in small size investments, giving impetus to young start-ups. Over 75 percent of the PE/VC deals over the past two years have been small-ticket investments, indicating an increase in early stage investments year-on-year.
“Investment activity made a strong recovery in the second half of the year, and we witnessed greater participation from angel investors, family offices, corporate houses, current and former entrepreneurs. We are also witnessing increased participation across countries, many of them for the first-time providing credence to India’s start-up growth story. The positive investment activity showcases the global community’s confidence in India’s start-ups and highlights India’s ability to be a game changer in the e-commerce and consumer Internet sector,” Pahwa added.
Growth projection for key e-commerce industry:
- EdTech in India is estimated to grow 3.7x in the next five years, from US$2.8 billion in 2020 to US$10.4 billion and 37 million+ paid EdTech users by 2025
- Growth of FinTech during 2020-25 is projected at 22.7 percent CAGR
- Estimated gamers in India in 2021 will be 628 million
- India e-commerce is expected to reach US$99 billion by 2024, growing at a 27 percent CAGR over 2019-24, with grocery and fashion/ apparel likely to be the key drivers of incremental growth.
- PE/VC investment in the B2B stage has been rising since this sector is still new, with potential to grow big in the future.
- 1.2 percent or US$10.5b of India’s grocery sales to be online by 2023
- Majority of funding is towards building supply chain; expanding into new segments; global expansion; acquisition or consolidation; bring innovative product offerings to the market.
The growth projected in the sector, certainly augurs well for not only companies but also investors. There is also a new class of angel investors comprising experienced professionals and successful entrepreneurs who are investing alongside institutional investors, which helps investee companies source talent, gain operational and strategic benefits.